The Labor Ministry plan would divert taxes from future
retirement plans to meet current pension payments and narrow the
state system’s deficit. That would reduce the future cash pool
and deplete a source of long-term investment capital, according
to Finance Minister Anton Siluanov.

The law should be ready by mid-2013 so it may come into
force Jan. 1 2014, Dmitry Peskov, Putin’s spokesman, said today
by phone.

The retirement overhaul comes as this year’s State Pension
Fund deficit is set to exceed 1 trillion rubles ($31.6 billion),
equivalent to 1.8 percent of gross domestic product. The Labor
Ministry’s plan would cut the share of payrolls that’s invested
for future retirees, the so-called funded part of the system, to
2 percent from 6 percent, increasing the share that pays current
retirees to 20 percent from 16 percent.

The National League of Management Companies wrote to Putin
Nov. 2 asking him to block the legislation as it would deprive
the economy of “its strongest investment resource.” Pension
cash should be invested to help promote the government’s goal of
transforming Moscow into an international financial center and
support financial-market liquidity, it said.

GDP will advance 3.5 percent in 2012, according to the
government, slowing from last year’s 4.3 percent expansion and
8.5 percent growth in 2007.

Putin’s decision to back the plan is “wrong,” according
to Evsey Gurvich, head of the Economic Expert Group, which
advises It’s an advisory group of independent experts that works
with the Economy Ministry, the Finance Ministry and the central
bank.

“It would mean we ease today’s pension problem but weaken
the pension system in the future,” he said today by phone.
“We’d have to implement serious measures in the future to keep
the system alive, such as raising the retirement age and
limiting payments for retirees that still work.”